Tired Of Waiting on Keystone XL? Here Comes Wrangler
by Justin Dove, Investment U Research
Monday, October 3, 2011
Activists and politicians continue to delay any action on the proposed Keystone XL pipeline from the Alberta oil sands to refineries in Illinois and Oklahoma.
Even the Dalai Lama has spoken out against the darned thing...
Environmentalists are weary of the TransCanada (NYSE: TRP) pipeline traveling over sensitive areas, such as the Ogallala Aquifer in Nebraska.
According to the Vancouver Sun, Keystone XL "would run through 411 kilometers of the Cornhusker State, crossing the eco-sensitive Sand Hills and the vast Ogallala Aquifer, which provides 80 percent of Nebraska's drinking water."
But proponents say the proposed line would create much-needed jobs and economic growth throughout the Midwest. It may also lower gas prices in the United States and curb foreign dependence.
The U.S. Department of State claims it's committed to making a final decision by December 31, 2011, but there's no guarantee.
Wrangler in the Pipeline
Investors banking on the Keystone XL are undoubtedly tired of waiting for the ordeal to play out. But for those tired of waiting, there are plans for another big pipeline that likely won't face the same opposition.
The proposal for the Wrangler pipeline includes:
- It will transport bubblin' crude from the oversupplied hub at Cushing, Oklahoma to the Gulf Coast refining complex in Texas.
- It will initially have capacity to transport up to 800,000 barrels of crude oil per day.
- It will accommodate the medium-to-light crude oil currently stranded in Oklahoma and priced at a discount to the oil imports being used by Gulf Coast refiners.
- The pipelined will be designed to be easily expanded.
- It will originate in Oklahoma and extend approximately 500 miles south. It would closely follow existing pipeline corridors, making the environmental impact slight. It would conclude at a storage facility in Harris County, Texas.
Two JV Energy Players With Solid Dividends
The proposed Wrangler pipeline is a joint venture between Enbridge Energy (NYSE: EEP) and Enterprise Products Partners (NYSE: EPD). Enbridge owns the terminal in Cushing where the line will originate and Enterprise owns the storage terminal in Texas where it will conclude.
Enbridge is also involved in the Northern Gateway project, which will take crude from the Alberta oil sands to the British Columbian coast. From there, tankers will carry it to the ever-growing Asian markets. That 1,100-kilometer, $5.5-billion pipeline will enter regulatory hearings in January and has been backed by Chinese oil companies Sinopec (NYSE: SHI) and MEG Energy (OTC: MEGEF.PK).
In 2010, Enbridge incurred a $611-million non-recurring expense, which kept it from being profitable. However, the Houston-based company has reported a profit in the first two quarters. Assuming Enbridge has similar results in the third and fourth quarters, it should carry a P/E ratio of approximately 16.
Enbridge also has a strong record of paying dividends. It's currently yielding just over $2 a year (7.7 percent) and has raised its dividend every year since it went public in 1992.
Enterprise has a market cap of more than $33 billion, about five times that of Enbridge. It's paying a slightly higher dividend of $2.42 a year (six percent). Enterprise has also raised its dividend consistently since it went public in 1998. However, its P/E of 22.96 isn't quite as attractive as Enbridge.
The Bottom Line: Keystone and Wrangler's Future
The future of the Keystone XL pipeline is very much in question, with so much high-profile opposition. If it does in fact get the nod to commence, it will likely be great news for TransCanada. If not, TransCanada will likely take a dip, considering it's somewhat priced to include the proposed pipeline.
In the meantime, Wrangler may have a much better chance at survival and could create a great opportunity for investors. The added advantage of solid dividend yields from both concerned parties sweetens the pot a bit.